Continuing our one-a-day series examining the issues of Jeff Barnett, the Democrat challenging Rep. Frank Wolf in Virginia’s 10th Congressional district, we look now at Re-regulate the Megabanks.

Under Republican leadership, our Nation tilted the economic playing field in favor of big banks – then took the referees off the field. Now we have the deepest recession in 75 years, mountains of debt, millions of lost jobs, and a housing crisis that is destroying tens of thousands of families.

This is typical of the left — “First, the Republicans did such-and-such, and then so-and-so happened.” No causal connection is shown between the two — and they don’t care. It’s guilt by implication.

BTW, do those big banks include Fannie Mae and Freddie Mac? They, and the expanded Community Reinvestment Act, set up the house of cards that started the recession.

Five megabanks still control 75% of all lending in America. They are still Too-Big-To-Fail.

Why is that? What would be so terrible about the collapse of these banks? If a large bank were, instead, a hundred smaller banks that all collapsed, what would be the difference? If we have to bail out one big bank, would we not have to bail out the hundred smaller ones?

Don’t get me wrong, we still need big banks to serve global networks of huge corporations – but our concentration of trillion dollar banks places national financial security at risk.

Not to my way of thinking. The global economy is a systemic risk. Previous bank collapses occurred with banks both big and small. A run on a hundred small banks is no different than a run on one huge one. Being systemic risk, not local risk, spreading the risk does not reduce it.

We learned this lesson the hard way. To manage risk we need greater involvement by small banks.

Why?

We can help small banks compete with the megabanks by giving them an edge in the federal funds rate and the overnight discount rate. This will help the 8500 other banks in America serve a larger part of our economy.

Once again, when the government gives something to one group, it must take it from another. Why do the large banks have a competitive advantage over the small ones, if they are both getting the same federal funds rate and overnight discount rate? Because the large banks are more efficient. They do not have a hundred presidents, but one who is paid a tenth of what those hundred would make. And they get the best presidents, not a hundred middling ones.

So, naturally, the government solution will be to tax the big banks. Who, ultimately, will pay the tax? The customers. That means you and me.

Comments

Written by squiddy about 6 years ago.

Here’s where I’m confused about the Democrat party and their collective “take” on the Sub-Prime Mortgage mess and the resultant financial chaos – when they say things like what Barnett said, blaming the Republicans and the Mega-Banks, is that just political spin? Or do they really not understand what happened, and why? I actually hope it’s the former, but their behavior since tells me they may actually believe that – because they seem insistent on making the same kinds of mistakes that led to the Sub-Prime collapse in the first place.

Because if there’s *single* lesson to be learned from all of that calamity , it wasn’t a lack of small banks, it wasn’t the Republicans, it wasn’t Democrats, it wasn’t greed, it wasn’t laws that encouraged mortgage companies to place mortgages and then quickly securitize them, it wasn’t the easy-money interest-rate setting policies of the Fed, it wasn’t people tempted into real-estate speculation by the notion of easy money (there were even television shows about flipping real estate), or the CRA or the miscalculation of risk assessments on CDO’s, and it wasn’t the ability of someone to buy CDS’s on CDO’s they didn’t even own, or on HUD setting policies for Fannie/Freddie for placing low-income mortgages, or Glass-Steagal, or George Bush or Bill Clinton or Henry Cisneros or Alan Greenspan and on and on and on – all played a part, to be sure.

But I think the *single* most important thing a would-be legislator would’ve learned from all that is the unintended consequences of what they do can be catastrophic, far worse than the problem they were “fixing” in the first place.

In my view, if there was single principal that caused it all, it was the *government*, wanting to do a “good thing”, that is, encouraging home-ownership for low-income people, and so bent the rules of good sense in a thousand different ways. It wasn’t a *lack* of regulation, it was the *wrong* regulations.

Written by dans about 6 years ago.

Squiddy, Don’t forget Andrew Cuomo who played a major role. Any pol that does not understand how the mess started is doomed to repeat those mistakes. Unless of course, we the people retire them first..

Written by Cathymac about 6 years ago.

New Cuomo v Palladino poll – if R’s can – make it there, they’ll make it ANYWHERE………: